- The Aud/USD weakens about 0.6565 in the first measures of the Asian session on Monday.
- Trump revived commercial tensions with new tariffs on the EU and Mexico, weighing on higher risk assets such as the Australian dollar.
- The operators prepare for the data of the China Balance that will be published on Monday, before the GDP Report of the China Q2.
The Aud/USD pair extends the fall to around 0.6565 during the first measures of the Asian session on Monday. The Australian dollar (Aud) weakens against the dollar after the new tariff threats of US President Donald Trump. Investors expect the publication of China’s commercial balance data that will be released later on Monday, before the Gross Domestic Product (GDP) report of the second quarter (Q2).
Trump said on Saturday that the United States (USA) will impose a 30% tariff on the goods of the European Union (EU) and Mexico that will enter into force on August 1. These statements followed the announcement of a 35% tariff on Canadian imports, which will begin on August 1. He also proposed a general tariff rate of 15%-20%on other commercial partners, an increase with respect to the current base rate of 10%.
Investors remained cautious as the US Federal Reserve (Fed) is expected to maintain stable interest rates while waiting to see the impact of tariffs on price pressures. This, in turn, could raise the US dollar (USD) and create a wind against for the pair. The president of the Fed of Chicago, Austan Goolsbee, warned that the ongoing commercial policy under Trump’s constant tariff threats could hinder the Fed’s ability to make rates cuts that both the market in general and Trump himself want to see.
On Tuesday, China’s GDP for the second quarter and retail sales reports will be at the center of attention. It is estimated that China’s economy has slowed in Q2 to 5.2% year -on -year from 5.4% in Q1, since commercial tensions with the US added deflationary pressures. In quarterly terms, the economy is expected to expand 1.0% in Q2, slowing down from 1.2% in Q1. If the reports show an upward surprise in Chinese GDP data, this could help limit the losses of the AU, which acts as a China Proxy, in the short term, since China is an important commercial partner of Australia.
Australian dollar – frequent questions
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (RBA) influences the Australian dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian dollar.
Iron mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
